Successful airport auction shows an increase in foreign interest in Brazil

The Jair Bolsonaro administration started its infrastructure concession plans with its best foot forward on Friday, in large part thanks to foreign companies who played out a fierce battle for the three airport blocks up for grabs. It is a sign that foreign investors’ appetites are coming back after the worst economic recession in Brazil’s history.

In total, the twelve airports attracted BRL 2.38 billion in bids to be paid upfront, above the government’s estimate of BRL 2.1 billion. The average premium for the assets reached 986 percent and the total investment is estimated at BRL 3.5 billion for the next 30 years.

Spanish group Aena Desarollo Internacional is being considered the biggest winner. The Madrid airport operator—a newcomer in the Brazilian market—was awarded the Northeast block, which comprises airports in João Pessoa, Campina Grande, Recife, Maceió, Aracaju, and Juazeiro do Norte.

As we observed in our morning newsletter, the block was the most coveted of today’s auction. Besides the region’s touristic potential, these airports are closer to Europe, which could attract international carriers to create new, cheaper international routes—especially for flights coming from other South American countries heading to Europe.

A win for the government

In a note to clients, analysts from BTG Pactual bank observed that “the government is also a winner as the auction attracted relatively high granting fees from traditional players already operating in Brazil (Vinci, Fraport, Zurich, CCR) and from newcomers.” The previous airport round, in 2017, auctioned airports in Fortaleza, Salvador, Florianópolis, and Porto Alegre, and attracted only three international players.  

On Twitter, President Jair Bolsonaro celebrated the result as a “great victory” and “a sign that Brazil is regaining the world’s trust.” Infrastructure Minister Tarcísio Gomes de Freitas told Agência Brasil that this auction and this premium was “a hit on the direction of Brazil’s economic policy.”

The auction marked a change in concession models in Brazil. For the first time, they were auctioned in blocks, and Infraero, the state company that manages Brazilian airports, wasn’t part of the consortiums. Also, payments to the federal government are conditioned to the profitability of the airport. Should it be less profitable, them the winning company would pay a lesser annual amount—until the debt is settled. The cabinet of the president’s Chief of Staff estimates a further BRL 1.9 billion in revenue from the airports over the next 30 years.

Two more airport auctions are foreseen and the next one—including Curitiba airport—may be announced as soon as next week, according to Folha de S.Paulo. Congonhas and Santos Dumont airports, the most desired in the country, will be offered in the last round. The projection is that, by 2022, all of the airports will be handed over to the private sector, a plan inherited from former President Michel Temer, but highly supported by the new liberal economic team.

Besides providing better services, the government wants to be freed from investing in infrastructure—a long-time issue in Brazil—in a period when the country’s accounts are strapped. [/restricted]